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The International Energy Agency (IEA), the developed nation body founded in the 1970s to deal with oil crises precisely like the one we’re now facing, has announced something extraordinary.
Its members, which is to say most of the world’s rich nations, will release an unprecedented amount of oil from their national stockpiles into the global market in the coming weeks.
This emergency stockpile release is more than double the last record, a whopping 400 million barrels of oil, to come from the stockpiles of its members around the world. Yet here’s the striking thing: far from falling, oil prices barely budged. After the announcement, Brent crude was still around 25% higher than before the attacks in the Gulf began.
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All of which raises the question: why? The short answer is that even after this new infusion of oil, the world is likely to remain short of oil. The long answer comes back to the fundamental nature of the oil market.
The best way to think of the oil market is as an enormous set of pipes through which crude oil and its products are constantly flowing. What matters, far more than how much oil there is in the ground, either in the form of reservoirs or stockpiles, is something more simple: how much oil is pumped through the global system every day.
And in recent years, the amount pumped through the system each day has worked out at about 100 million barrels of oil. Now, these numbers go up and down as the seasons turn and perhaps, in the coming years, might go down as people adopt electric cars and find alternatives to fossil fuels. But the key thing to keep in the back of your mind is that for the time being, much of the world’s living standards – our access to transportation, to power, to consumer goods, pharmaceuticals…
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